Assembly Speaker Karen Bass, D-Los Angeles speaks at a news conference, Thursday, Sept. 18, 2008, at the State Capitol in Sacramento, Calif. Legislative leaders emerged from a meeting with Gov. Arnold ... more

Photo: Lezlie Sterling, AP

Senate cut billions from state's stimulus share

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California officials who were counting on help from the new economic stimulus package to confront a $42 billion budget shortfall are now fretting that the Senate is dramatically shortening that lifeline of federal aid.

The deal reached by a gang of centrist lawmakers, which the Senate is set to approve today, slashed nearly $100 billion in spending from the House version of the bill. Money for cash-starved states and public schools took the biggest hit.

The Senate sliced in half a $79 billion "state fiscal stabilization fund," paring California's share from $7.9 billion to less than $4 billion. The Senate also wiped out a House program to build and repair schools, costing the state $2.4 billion.

"We do have worries about it," California Assembly Speaker Karen Bass, D-Baldwin Vista (San Diego County), said Monday. "Hopefully some of the money that was cut can be restored in the conference committee - maybe not all, but some of it."

House Speaker Nancy Pelosi, D-San Francisco, has pledged to fight the cuts as the House and Senate merge their two bills this week.

Tough to restore

But lawmakers of both parties acknowledge it will be tough to make major changes without losing support from three Senate Republicans who joined 56 Democrats and two independents Monday night in voting to send the $838 billion bill to the floor for final passage.

The Senate's actions could have a major impact on California's grim budget picture. Gov. Arnold Schwarzenegger and state legislative leaders have all stressed that they can't rely on federal aid to solve the state's fiscal woes. But they have seen the money as a way to ease the sting of drastic budget cuts.

State officials had been considering tapping the House's $7.9 billion state fiscal stabilization fund to avoid seeking $10 billion in expensive short-term loans from Wall Street, potentially saving hundreds of millions of dollars in fees and insurance.

But that may no longer be a possibility: The Senate bill has earmarked its $39 billion in state fiscal relief to prevent cuts to education. State legislative aides and congressional staffers said it is unclear whether California could use the money to trim its borrowing costs.

California Sen. Dianne Feinstein said she was disappointed that the deal reached in the Senate eliminated the House's $20 billion school modernization fund, which she believes would create jobs.

"I come from a state that has to build a school a week to stay even because of our population, so it's a difficult situation," Feinstein said after the deal was announced late Friday. But she added that it is important to get the bill passed and then tinker with the final details.

"We'll go into conference and we'll be able to look more deeply at it," she said. "I think this is as good a compromise as we're going to get."

The single biggest piece of funding for California in the House bill was $11 billion to help the state with its Medicaid costs. But under a formula passed by the Senate, which favors rural states, California would get just $9.6 billion, according to California Sen. Barbara Boxer's office. Boxer and Pelosi are seeking to tweak the formula to boost the state's share.

Head Start cuts

The Senate also cut funding for Head Start early childhood education programs in half, reducing the $82 million California was expecting under the House bill.

But other areas of spending went untouched. The state would still receive about $4.5 billion for highways, bridges, water systems and other infrastructure under the Senate bill.

Pelosi is pushing back against the Senate package and she has some leverage - she will name the House negotiators who will hash out the final details. At an event in San Francisco Sunday, she warned that the Senate bill would lead to more layoffs of firefighters, teachers and health care providers.

"The question is, do you want 4 million jobs or something less than that?" she said. "I think the American people want the jobs."

Nebraska Sen. Ben Nelson, a conservative Democrat who helped craft the deal, said he and others will resist efforts to restore tens of billions of dollars in aid to states.

"It's a nonstarter," Nelson said on Fox News, noting that the package already offers about $200 billion to states for infrastructure, education and other programs.

Lawrence Summers, one of President Obama's top economic aides, said Sunday that the White House would press for a final package that included more money for education and aid to states.

"I'll be honest with you, the Senate version cut a lot of these education dollars," Obama said in Indiana on Monday. "I would like to see some of this restored."

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